MG106 Strategic Management
London School of Economics and Political Science
July 3, 2025
1986: Europe’s busiest route
Three players: Aer Lingus • British Airways • ???
Enter the Ryan brothers with a “better idea”
1️⃣ Does Ryanair’s launch strategy make sense?
2️⃣ How will Aer Lingus and BA respond?
3️⃣ What went wrong?
Key lens: Strategic interactions matter
Your success depends on what competitors do
Use WHO-WHAT-HOW framework
Then predict competitor responses
Current Players
Untapped Demand
Ryanair’s proposition: Same service at £98
Ryanair 🆕
Aer Lingus/BA 👑
Question: What’s really different here?
From Exhibit 4: BA/Aer Lingus Costs
Revenue per passenger: £166.50
Operating costs: £155.10
Margin: £11.40 (6.9%)
Key Question: Where can Ryanair save?
Staff costs? • Airport fees? • Aircraft efficiency?
But are average costs the right metric?
ACCOMMODATE 🤝
RETALIATE ⚔️
What determines this choice?
ACCOMMODATE 📊
Lost customers: 0-64,240
Lost profit: £0-8.8M
Depends on switching
RETALIATE 💸
Price cut: All 500,000
Lost profit: £17-34M
Devastating margins
Accommodation seems rational… but is it?
Aer Lingus Factors 🇮🇪
BA Factors 🇬🇧
Key Insight: When competitors have goals beyond profit,
your cost advantage might not protect you
1986-1987: Initial success! ✅
1988-1991: Disaster strikes ❌
What triggered the change?
“We exposed ourselves” - Michael O’Leary
The birthday cake ad didn’t help… 🎂
Ryanair’s Assumptions ❌
Market Reality ✓
Being operationally better at the same game = dangerous
| Aer Lingus: High Price | Aer Lingus: Low Price | |
|---|---|---|
| Ryanair: High Price | Both profit ✅ | Ryanair loses |
| Ryanair: Low Price | Ryanair wins | Both suffer 💀 |
The Trap: Individual incentives → Collective disaster
Sound familiar?
1. Me-too strategies invite retaliation Same game + lower prices = price war
2. Consider competitor motivations Not everyone maximizes profit
3. Success can trigger failure Growth without differentiation = vulnerability
4. Strategy is interactive Your best move depends on their response
So what should Ryanair do now?
Option 1: Exit ☠️ Cut losses, close down
Option 2: Feeder service 🔄 Serve US carriers from Shannon
Option 3: No-frills model ✈️ The Southwest approach
Option 4: Add business class 💼 Move upmarket
Which would you choose and why?
Read: How Ryanair became Europe’s most profitable airline
Consider:
Key: From playing the same game → changing the game